Month: March 2023

USITC Assessment on the Economic Impacts of the Section 301 Tariffs—Textiles and Apparel

In March 2023, the US International Trade Commission (USITC) released its official assessment of the economic impacts of Section 301 tariffs on imports from China.

USITC adopted two methods to estimate Section 301 tariffs’ economic impacts:

  • Econometric model estimates using monthly trade data (10-digit HS code) from January 2017 to December 2021.
  • A set of partial equilibrium models that linked section 301 tariffs to domestic prices and production at the four-digit NAICS code level. USITC used data from 2018 to 2021 as the base year.
  • USITC only considered Section 301 tariffs’ direct impacts, i.e., “how tariffs impacted prices, production, and trade for products subject to section 301 tariffs and domestic sectors that compete directly with those imports.”

Regarding the overall impact of Section 301 actions, USITC found that the tariffs imposed on Chinese goods resulted in a price rise paid by US importers, but the exporter prices received by Chinese firms were mostly unchanged. As a result, “imports from China decreased in quantity, leading to a substantial decline in their import value. These changes, in turn, caused an increase in production and prices in US domestic industries that were competing with Chinese imports.”

USITC also evaluated the specific impacts of Section 301 tariffs on the Cut and Sew apparel (NAICS 3152) sector. According to USITC:

“nontariff-inclusive value” refers to the change in the value of imports from China excluding the value of the section 301 duties themselves, which provide an indication of the change in import quantities because export prices are mostly unchanged.

First, Section 301 tariffs hurt US apparel imports from China. USITC estimated that US woven apparel (NAICS 3152) imports from China decreased by 14.7% in 2019 but fell nearly 40% in 2020 and 2021 due to Section 301 tariffs. However, USITC didn’t explain why imports from China suddenly worsened, nor if other factors, such as the Uyghur Forced Labor Prevention Act (UFLPA), played a role.

Second, Section 301 tariffs mostly replaced US woven apparel (NAICS3152) imports from China with other sources. However, the direct benefits of Section 301 tariffs to US domestic cut and sew manufacturing seemed limited. Specifically, USITC estimated that US woven apparel imports from sources other than China increased by 7.1% in 2019, 24.8% in 2020, and 25.2% in 2021 due to Section 301 tariffs. In comparison, Section 301 tariffs resulted in modest growth of US domestic woven apparel (NAICS3152) production (up to 6.3%) over the same period.

Actual trade and production data further showed that US woven apparel (NAICS 3152) imports from sources other than China increased from $55.3 billion in 2018 to $61.2 billion in 2021 (or up 10.7%). Over the same period, US domestic woven apparel (NAICS 3152) sales & value of shipments declined from $7.49 billion to $7.38 billion (or down 1.4%) (Data source: Census). In other words, no clear evidence suggests that Section 301 tariffs boosted US domestic woven apparel production.

Third, Section 301 tariffs made US woven apparel (NAICS 3152) imports from EVERYWHERE more expensive. On the one hand, USITC found that the price of US woven apparel (NAICS 3152) imports from China increased by 4.4% in 2019, 14.7% in 2020, and 14.5% in 2021 due to the Section 301 tariffs. However, similar to the case of trade volume, USITC didn’t explain why Section 301 tariffs’ price impact suddenly became more significant in 2020 and 2021. (Note: In fact, the Tranche 4A tariffs were 15% since September 1, 2019, but were reduced to 7.5% effective February 14, 2020, because of the US-China Phase One deal.)

Meanwhile, due to limited production capacity outside of China, the Section 301 tariffs caused an increase in the cost of US woven apparel imports from all other countries. Specifically, USITC found that the price of US woven apparel (NACIS 3152) imports from sources other than China increased by 3.2% from 2018 to 2021. (Note: given the hiking sourcing costs in 2022, the price increase could be more significant should USITC include updated 2022 trade data in the estimation.)

Additionally, USITC acknowledged that its estimation may “likely captures the most significant impacts of these tariffs in the short run.” However, some effects of section 301 tariffs would likely be delayed. For example, USITC said, “if importers and domestic producers anticipated the tariffs remaining in place long enough,” they may consider more costly changes, such as adjusting their supply chains and investing in domestic production.

Additional readings:

New Study: PVH Corporation’s Evolving Apparel Sourcing Strategies

PVH Corporation (PVH), which owns well-known brands including Calvin Klein, Tommy Hilfiger, Van Heusen, Arrow, and Izod, is one of the largest US fashion companies with nearly $9.2 billion in sales revenues in 2022.

By leveraging PVH’s publically released factory lists, this article analyzes the company’s detailed sourcing strategies and changes from 2021 to 2022. Key findings:

Trend 1: PVH adopts a diverse apparel sourcing base and continues to work with more vendors. Specifically, in 2022, PVH sourced apparel from as many as 37 countries in Asia, Europe, America, the Middle East, and Africa, the same as in 2021. Despite not expanding the number of countries it sources from, PVH increased its total number of vendors from 503 in 2021 to 553 in 2022, highlighting the company’s ongoing commitment to diversifying its sourcing base.

Trend 2: Asia is PVH’s dominant sourcing base for finished garments and textile raw materials.

Specifically, about 56.2% of PVH’s apparel suppliers were Asia-based in 2022, followed by the EU (20.3%). Compared with a year ago, PVH even added twenty new Asia-based factories to its supplier list in 2022, suggesting no intention of reducing sourcing from the region. Moreover, From 2021 to 2022, as many as 83% of PVH’s raw material suppliers were Asia-based, far exceeding any other regions.

Trend 3: PVH’s China sourcing strategies are evolving and more complicated than simply “reducing China exposure.”

  • First, PVH continued to work with MORE Chinese factories. Specifically, between 2021 and 2022, PVH added 17 Chinese factories to its apparel supplier list, more than other countries. However, the expansion could be because of PVH’s growing sales in China.
  • Second, PVH’s garment factories in China are smaller than their peers in other Asian countries. For example, in 2022, most PVH’s contracted garment factories in top Asian supplying countries, such as Bangladesh (87.5%), Vietnam (63.3%), and Sri Lanka (65.3%), had more than 1,000 workers. In comparison, only 11.3% of PVH’s Chinese vendors had 1,000 workers, and more than 62.5% had fewer than 500 workers. The result suggests that PVH treats China as an apparel sourcing base for flexibility and agility, particularly those orders that may include a greater variety of products in relatively smaller quantities.
  • Further, PVH often priced apparel “Made in China” higher than those sourced from the rest of Asia.

Trend 4: PVH actively used “emerging” sourcing destinations outside Asia. Other than those top Asian suppliers, PVH’s apparel sourcing base includes several countries in America, the EU, and Africa that deserve more attention, including Portugal, Brazil, Tunisia, and Turkey. Overall, PVH sourced from these countries for various reasons, from serving local consumers, seeking sourcing flexibility, accessing raw materials, and lowering sourcing costs.

by Sheng Lu and Ally Botwinick

Further reading: Lu, Sheng & Botwinick, Ally (2023). US fashion companies’ evolving sourcing strategies – a PVH case study. Just-Style. Retrieved from https://www.just-style.com/features/us-fashion-companies-evolving-sourcing-strategies-a-pvh-case-study/

USTR Fiscal Year 2024 Goals and Objectives—Textiles and Apparel

In March 2023, the Office of the United States Trade Representative (USTR) released its 2024 Fiscal Year Budget report, outlining six major goals and objectives for FY2024. USTR’s FY2024 goals and objectives for textile and apparel are similar to FY2023, but keywords such as “near-shoring” are newly emphasized.   

Goal 1: Open Foreign Markets and Combat Unfair Trade

  • Provide policy guidance and support for international negotiations or initiatives affecting the textile and apparel sector to ensure that the interests of U.S. industry and workers are taken into account and, where possible, to provide new or enhanced export opportunities for U.S. industry. (Note: no change from FY2023)
  • Conduct reviews of commercial availability petitions regarding textile and apparel products and negotiate corresponding FTA rules of origin changes, where appropriate, in a manner that takes into account market conditions while preserving export opportunities for U.S. producers and employment opportunities for U.S. workers. (Note: no change from FY2023)
  • Engage relevant trade partners to address regulatory issues potentially affecting the U.S. textile and apparel industry’s market access opportunities. (Note: no change from FY2023)
  • Continue to engage with CAFTA-DR partner countries to address trade-related issues to optimize inclusive economic opportunities; strengthen trade rules and transparency and address non-tariff trade impediments; provide capacity building in areas such as textile and apparel trade-related regulation and practice on customs, border and market access issues, including agricultural and sanitary and phytosanitary regulations, to avoid barriers to trade. (note: newly mentioned “transparency”)
  • Continue to engage CAFTA-DR partners and stakeholders to identify and develop means to increase two-way trade in textiles and apparel and strengthen the North American supply chain and near-shoring to enhance formal job creation. (note: newly emphasized “Near-shoring”)
  • Provide policy guidance and support for international negotiations or initiatives affecting the textile and apparel sector to ensure that the interests of U.S. industry and workers are taken into account and, where possible, to provide new or enhanced export opportunities for U.S. industry. (Note: no change from FY2023)
  • Conduct reviews of commercial availability petitions regarding textile and apparel products and negotiate corresponding FTA rules of origin changes, where appropriate, in a manner that takes into account market conditions while preserving export opportunities for U.S. producers and employment opportunities for U.S. workers (note: no change from FY2023)
  • Engage relevant trade partners to address regulatory issues potentially affecting the U.S. textile and apparel industry’s market access opportunities. (note: no change from FY2023)

Goal 2: Fully Enforce U.S. Trade Laws, Monitor Compliance with Agreements, and Use All Available Tools to Hold Other Countries Accountable

  • Closely collaborate with industry and other offices and Departments to monitor trade actions taken by partner countries on textiles and apparel to ensure that such actions are consistent with trade agreement obligations and do not impede U.S. export opportunities. (note: no change from FY2023)
  • Research and monitor policy support measures for the textile sector, in particular in the PRC, India, and other large textile producing and exporting countries, to ensure compliance with international agreements. (note: no change from FY2023)
  • Continue to work with the U.S. textile and apparel industry to promote exports and other opportunities under our free trade agreements and preference programs, by actively engaging with stakeholders and industry associations and participating, as appropriate, in industry trade shows. (note: no change from FY2023)

Goal 4: Develop Equitable Trade Policy Through Inclusive Processes

  • Take the lead in providing policy advice and assistance in support of any Congressional initiatives to reform or re-examine preference programs that have an impact on the textile and apparel sector. (note: no change from FY2023)

Other Priorities for USTR in FY2024:

#1 “Advancing a Worker-Centered Trade Policy.” For example, given “communities of color and lower socio-economic backgrounds were more negatively affected by free trade policies that have reduced tariffs and distributed supply chains across the globe,” USTR will develop “a new strategic approach to trade relationships that is not built on traditional free trade agreements…USTR is embarking on trade engagements with allies and like-minded economies, like Taiwan and Kenya and [through] multinational economic frameworks that focus on clean energy and supply chains rather than tariffs.”

#2 Address forced labor. For example, USTR developed the first-ever focused trade strategy to combat forced labor. Paired with the implementation of the Uyghur Forced Labor Prevention Act, and the Memorandum of Cooperation (MOC) launching of a Task Force on the Promotion of Human Rights and International Labor Standards in Supply Chains under the U.S.-Japan Partnership on Trade. And USTR will “use every tool available to block the importation of goods made partially or entirely with forced labor.”

#3 Re-Aligning the U.S. – Beijing Trade Relationship. “USTR continues to keep the door open to conversations with the PRC, including on its Phase One commitments. However, USTR acknowledges the Agreement’s limitations. USTR’s strategy is expand beyond only pressing Beijing for change and includes vigorously defending our values and economic interests from the negative impacts of the PRC’s unfair economic policies and practices.”

#4 Strengthen enforcement of US trade policy. For example, USTR sees enforcement “a key component of our worker-centered trade policy.” USTR is “upholding the eligibility requirements in preference programs,” such as the African Growth and Opportunity Act (AGOA). As many enforcement tools were “were crafted decades ago,” USTR will be “reviewing our existing trade tools and working with Congress to develop new tools as needed.”

(This blog post is not open for comment)

Inside Garment Factories in Vietnam, Cambodia, and Sri Lanka (updated March 2023)

Garment factories in Vietnam
Garment factories in Cambodia
Garment factories in Sri Lanka

2023 WITA Academy: Pathways To Opportunity – University of Delaware

The Washington International Trade Association (WITA) Academy, in partnership with UD’s Fashion and Apparel Studies Department, will host a virtual program exploring career opportunities in international affairs, business, fashion, apparel, and trade.

The program is split into two half-day sessions. Public sector trade-related careers will be examined on Friday, March 10, and private sector opportunities will be the focus on Monday, March 13. Both sessions will be held from 8:45 a.m. to 12:30 p.m. on Zoom.

This event is free and open to ALL UD students (undergraduate and graduate) and faculty, but registration is required (please use UD email address): https://www.wita.org/events/u-of-delaware-pathways/

Confirmed speakers include:

  • Sarah Clarke, former Chief Supply Chain Officer, PVH Corp.
  • Hun Quach, Director of Policy and Advocacy, Levi Strauss & Co.
  • Stephanie Lester, Vice President, Head of Government Affairs, Gap Inc.; former Professional Staff, House Ways and Means Committee, Subcommittee on Trade
  • Patty Lopez, Sr. Director- Vendor Management, Gap Inc.; former Sr Director-Global Production, Gap Inc.
  • Julia Hughes, President, U.S. Fashion Industry Association
  • Natalie Hanson, Deputy Assistant USTR for Textiles, Office of the U.S. Trade Representative
  • Jon Gold, Vice President of Supply Chain and Customs Policy, National Retail Federation
  • Nate Herman, Senior Vice President, American Apparel and Footwear Association (AAFA)
  • Bill McRaith, former Chief Supply Chain Officer, PVH Corp.
  • Heidi Colby-Oizumi, Chief Chemicals and Textiles Division, US International Trade Commission
  • Linda Martinich, Senior International Trade Specialist, Office of Textiles and Apparel, US Department of Commerce
  • Thomas Newberg, International Trade Specialist, Office of Textiles and Apparel, US Department of Commerce
  • Blake Harden, Vice President, International Trade at Retail Industry Leaders Association (RILA); former Trade Counsel, U.S. House of Representatives, Committee on Ways and Means, Subcommittee on Trade
  • Eric Biel, Senior Advisor, Fair Labor Association; Adjunct Professor, Georgetown University Law Center; former Associate Deputy Undersecretary, U.S. Department of Labor, Bureau of International Labor Affairs
  • Nicole Bivens Collinson, President, International Trade and Government Relations, Sandler, Travis & Rosenberg, P.A.; former Assistant Textile Negotiator, Office of the United States Trade Representative
  • Amanda Blunt, Counsel, Legal Affairs & Trade, General Motors; former Associate General Counsel, Office of the U.S. Trade Representative
  • Lisa Schroeter, Global Director of Trade and Investment Policy, Dow; former Executive Director, TransAtlantic Business Dialogue
  • Maria Luisa Boyce, Vice President, UPS Global Public Affairs; former Executive Director Office of Trade Relations/Senior Advisor for Trade Engagement, U.S. Customs and Border Protectionformer President, Border Trade Alliance
  • Brenda Smith, Global Director of Government Outreach, Expeditors; former Executive Assistant Commissioner, U.S. Customs & Border Protection
  • Nikole Burroughs, Deputy Chief of Staff for Management and Resources, USAID; former Staff Director, Subcommittee on Asia, the Pacific the Nonproliferation, United States House Committee on Foreign Affairs
  • Catherine DeFilippo, Director of Operations, United States International Trade Commission; former Economist, US International Trade Commission
  • Paul H. DeLaney, III, Partner, Kyle House Group; former Vice President for Trade and International at Business Roundtable, former International Trade Counsel to Chairman Orrin G. Hatch for the U.S. Senate Committee on Finance
  • Erin Ennis, Senior Director, Global Public Policy, Dell Technologies; former Assistant to the Deputy US Trade Representative, Office of the US Trade Representative
  • Naomi Freeman, Consultant, Sandler, Travis & Rosenberg; former Director for the Generalized System of Preferences at the Office of the U.S. Trade Representative
  • Nasim Fussell, Partner, Holland & Knight LLP; former Chief International Trade Counsel, U.S. Senate Committee on Finance
  • Ed Gresser, Vice President and Director, Trade and Global Markets at PPI; former Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative
  • Jodi Herman, Assistant Administrator for Legislative and Public Affairs, USAID; former Vice President for Government Relations and Public Affairs, National Endowment for Democracy (NED)
  • Charlotte Mcclure, Logistics Supervisor, Cap America; former Overseas Specialist, Cap America; former Logistics Specialist, Cap America
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